US consumer confidence scales six-month high, labor market angst rises
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[August 28, 2024] By
Lucia Mutikani
WASHINGTON (Reuters) - U.S. consumer confidence rose to a six-month high
in August amid optimism over the economic outlook, but Americans are
becoming more anxious about the labor market after the unemployment rate
jumped to near a three-year high of 4.3% last month.
The better-than-expected reading in consumer confidence, reported by the
Conference Board on Tuesday, reflected improved perceptions of business
conditions over the next six months, and the survey suggested the odds
of a recession had continued to decline. Consumers' uneasiness over the
labor market is mirrored by concerns at the Federal Reserve, with Fed
Chair Jerome Powell last Friday signaling interest rate cuts were
imminent.
"This report supports a rate cut on both the decline in inflation
expectations and a softening labor market, but is not so weak as to
suggest a recession at this point," said Conrad DeQuadros, senior
economic adviser at Brean Capital.
The Conference Board's consumer confidence index increased to 103.3 this
month, the highest level since February, from an upwardly revised 101.9
in July.
Economists polled by Reuters had forecast the index would be little
changed from the previously reported 100.3. Confidence was higher among
consumers aged 35 years and older, and those with annual incomes above
$100,000.
The cutoff date for the survey was Aug. 21. The rise in confidence could
have been influenced by President Joe Biden dropping out of the November
presidential race and the nomination of Vice President Kamala Harris to
head the Democratic Party ticket.
The Conference Board made no mention of any political impact. The
University of Michigan this month, however, attributed the rise in its
consumer sentiment measure in August to increased optimism among
Democrats compared with Republicans.
Former President Donald Trump is the Republican Party candidate in the
upcoming election.
The Conference Board's Expectations Index, based on consumers'
short-term outlook for income, business, and labor market conditions,
improved to 82.5. That was the highest level since August 2023 and was
up from 81.1 in July. It was the second straight monthly reading above
80. A reading below 80 usually signals a recession ahead.
Consumers were less upbeat, however, about the labor market. The share
of consumers who viewed jobs as "plentiful" slipped to 32.8% from 33.4%
in July. Some 16.4% of consumers said jobs were "hard to get," up from
16.3% last month.
The survey's so-called labor market differential, derived from data on
respondents' views on whether jobs are plentiful or hard to get, fell to
16.4, the narrowest since March 2021, from 17.1 in July. This measure
correlates to the unemployment rate in the Labor Department's monthly
employment report. The unemployment rate has risen for four straight
months.
"While we wouldn't necessarily use it to predict month-to-month changes
in the unemployment rate, the fact that it keeps worsening is not a good
development," said Abiel Reinhart, an economist at J.P. Morgan,
referring to the labor market differential. "The message here is that
the July unemployment increase was not just a fluke."
Stocks on Wall Street were little changed. The dollar fell against a
basket of currencies. U.S. Treasury yields rose.
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A man arranges produce at Best World Supermarket in the Mount
Pleasant neighborhood of Washington, D.C., U.S., August 19, 2022.
REUTERS/Sarah Silbiger/File Photo
RATE CUTS COMING
Consumers' 12-month inflation expectations dropped to 4.9%, the
lowest level since March 2020, from 5.3% in July. Financial markets
expect the U.S. central bank to kick off its easing cycle next month
with a 25-basis-point rate reduction, though a half-percentage-point
cut cannot be ruled out.
The Fed has maintained its benchmark overnight interest rate in the
current 5.25%-5.50% range for more than a year, having raised the
policy rate by 525 basis points in 2022 and 2023.
With job growth ebbing, consumers were more pessimistic on their
income prospects over the next six months.
The share of consumers expecting their incomes to increase fell to
16.9% from 17.2% in July. The proportion anticipating a decline rose
to 12.7% from 11.6% last month.
Rising worries about finances weighed on buying plans for the next
six months. At face value that would suggest softer consumer
spending in the months ahead, but there is not a strong correlation
between confidence and spending.
"Politically-driven shifts in sentiment tend to be poorly correlated
with spending decisions," said Oliver Allen, senior U.S. economist
at Pantheon Macroeconomics.
Buying plans for motor vehicles fell as did those for major
household appliances. The share of consumers intending to purchase a
house was the smallest since early 2013.
Higher mortgage rates and home prices have pushed the dream of
owning a home out of the reach of many Americans.
But relief could be in sight as the reduced affordability has
increased the supply of homes on the market, helping to curb house
price inflation.
A separate report from the Federal Housing Finance Agency on Tuesday
showed single-family home prices dipped 0.1% on a month-on-month
basis in June after being unchanged in May. They increased 5.1% in
the 12 months through June, the smallest year-on-year rise since
July 2023, after advancing 5.9% in May.
New housing supply has surged to levels last seen in early 2008. The
existing homes inventory has also risen to the highest level in
nearly four years.
An outright decline in house prices is unlikely, however, in the
absence of significant labor market deterioration.
"Annual home price growth is on track to slow to just above 3% by
year end, and we expect it to stabilize around that pace," said
Nancy Vanden Houten, lead U.S. economist at Oxford Economics.
(Reporting by Lucia Mutikani in Washington; Editing by Paul Simao
and Matthew Lewis)
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